Case | 2010

Groupe Ariel, S.A.: Parity Conditions and Cross-Border Valuation: Brief Case.

by Timothy A. Luehrman and James Quinn

Abstract

Groupe Ariel evaluates a proposal from its Mexican subsidiary to purchase and install cost-saving equipment at a manufacturing facility in Monterrey. The improvements will allow the plant to automate recycling and remanufacturing of toner and printer cartridges, an important part of Ariel's business in many markets. Ariel corporate policy requires a discounted cash flow (DCF) analysis and an estimate for the net present value (NPV) for capital expenditures in foreign markets. A major challenge for the analysis is deciding which currency to use, the Euro or the peso. The case introduces techniques of discounted cash flow valuation analysis in a multi-currency setting and can be used to teach basic international parity conditions related to the value of operating cash flows.

Keywords: Cross-Cultural and Cross-Border Issues; Valuation; Business Subsidiaries; Policy; Cash Flow; Management Analysis, Tools, and Techniques; International Finance; Problems and Challenges; Production; Currency; Manufacturing Industry; Mexico;

Citation:

Luehrman, Timothy A., and James Quinn. "Groupe Ariel, S.A.: Parity Conditions and Cross-Border Valuation: Brief Case." Watertown, MA: Harvard Business Publishing Case, 2010.